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Housing market ripe for investors seeking high yield: CoreLogic

A steep rise in rents coupled with lower property prices presents opportunities for investors, a new report has discovered.

According to the inaugural National Australia Bank (NAB) Market Megatrends report — which combines analysis from property research house CoreLogic — rent values rose 10 per cent in the year to September 2022, while gross rental yields nationally rose 3.6 per cent from January to September.

“While these conditions have made the housing market less favourable for tenants, falling purchase prices and rising rent values could present some excellent opportunities for investors seeking a high rent yield strategy,” CoreLogic head of research Australia Eliza Owen said.

CoreLogic figures showed that rent gains were strongest in Darwin houses (31.6 per cent) and regional Western Australian units (31.4 per cent) between March 2020 and September 2022.

National house rent values rose by 21.1 per cent during this period while unit rents rose by 13.7 per cent.

The growth of combined regional unit rent values (27.0 per cent) outpaced houses (24.7 per cent), but in the combined capitals, house rent values (19.6 per cent) overtook units (11.0 per cent).

Among the capital cities, Melbourne was the only city to record single digit growth in both house (8.7 per cent) and unit (5.4 per cent) rent values.

Perth recorded the second highest growth in house rent values (28.9 per cent), while Brisbane came third (26.6 per cent), Adelaide came fourth (24.2 per cent) Sydney and Canberra tied at fifth (17.6 per cent), and Hobart placed sixth (16.2 per cent).

Meanwhile, Darwin also topped growth in unit rent values (29.0 per cent), followed by Perth (24.1 per cent), Adelaide (18.4 per cent), Brisbane (16.9 per cent), Hobart (14.7 per cent), Canberra (13.0 per cent), and Sydney (11.1 per cent).

Where are the strongest yields?

Gross rent yields (which is rental income expressed as a portion of purchase prices) have risen by 36 bps (to 3.6 per cent) nationally from the end of 2021 through to September, CoreLogic research reveals.

“The strongest rent yields are generally concentrated in resource-based markets. Investors interested in these areas must keep in mind that price movements have been historically volatile, with capital gains and rent return often tied to performance in the resources sector,” Ms Owen said.

However, the report also reveals other kinds of investment opportunities including in metropolitan apartment markets in Melbourne and Canberra, regional New South Wales, and lifestyle markets across Cairns and Tasmania.

What’s causing rents to spike?

Ms Owen attributed the surge in rent values to low levels of construction during the COVID-19 pandemic, meaning demand for rental properties is outstripping supply.

Moreover, remote working patterns resulted in a decline in share housing (according to the Reserve Bank of Australia), while the Australian Bureau of Statistics (ABS) has found that the average number of people per household declined from 2.6 in 2016 to 2.5 in 2021.

“The decline in the average size of households contributed to increased demand for housing, and renters likely represented a large portion of this new demand, where renters have greater flexibility and mobility to make changes to living arrangements,” she continued.

Finally, changing migration patterns during the COVID-19 pandemic could have increased rent values, particularly in regional areas, according to CoreLogic research.

ABS internal migration data indicated record net losses from the combined capital cities due to fewer regional arrivals to cities and greater capital city departures, which initially placed upward pressure on regional rents.

“The return of overseas migration is expected to put further upward pressure on rental demand, while a below-average volume of unit approvals over the past few months could limit rental supply longer term,” Ms Owen predicted.

“Overseas migration is typically skewed to rental housing demand in high density areas of Sydney and Melbourne, where higher growth in rents is expected in the short term.”

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